Employee non-compete ban challenged in court by US business groups

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The US Chamber of Commerce and other trade groups sued the US Federal Trade Commission on Wednesday after the regulator voted to ban non-compete agreements.

The coalition, which filed the lawsuit in a federal court in Texas, argues that the group will be adversely affected by the ban because it will curb their members’ ability to “protect their confidential information” and “investments in the workforce”.

The group — which also includes the Business Roundtable, Texas Association of Business and Longview Chamber of Commerce — is asking the court to void the rule and prohibit the FTC from enforcing it.

The regulator’s 3-2 vote approving the rule on Tuesday bans most non-compete contracts, which restrict workers from leaving for a competitor, usually for a certain period and in a specific geographic region.

The FTC pushed back on the group’s argument. “Our legal authority is crystal clear,” Douglas Farrar, spokesperson, said in a statement.

Congress included language in the legislation backing the FTC’s jurisdiction that bolsters the regulator’s authority to act on non-competes, he added. “Addressing non-competes that curtail Americans’ economic freedom is at the very heart of our mandate, and we look forward to winning in court.”

The legal battle between the regulator and various business groups would most likely play out for months, leaving employers in limbo as the rule makes its way through the US court system.

“Since its inception over 100 years ago, the FTC has never been granted the constitutional and statutory authority to write its own competition rules,” Suzanne Clark, the Chamber’s president and chief executive, said in a statement on Tuesday. “Non-compete agreements are either upheld or dismissed under well-established state laws governing their use.”

The Chamber has been a vocal critic of the FTC’s move since it was first proposed in January 2023. The regulator estimates that 30mn people in the US workforce are currently affected by such contracts, which have spread beyond high-paying executives to also cover hourly workers such as bartenders and security guards.